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ECON MIDTERM > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

What is GDP?

A

The market value of all final goods and services produced in a country during a period of time, typically one year

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2
Q

Why do we use GDP?

A

We cannot measure all of the production numerically so GDP sums everything up

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3
Q

True or False: GDP includes only the value of final goods and services which are goods and services produced by a final user and not included in the production of any other good or service

A

True

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4
Q

True or False: Total value production = total income

A

True

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5
Q

What are exports?

A

Expenditures by foreign firms, firms, and households on domestically produced goods and services

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6
Q

What are transfer payments?

A

Payments by the government to households for which the government does not receive a new good

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7
Q

Are transfer payments included in GDP? Why or why not?

A

No; they do not represent production because it is a payment without anything in return

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8
Q

What are the 4 ways households use their income?

A
  1. Purchase domestic goods
  2. Purchase imports
  3. Pay taxes
  4. Save money by making deposits in savings or checking or by buying stocks and bonds
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9
Q

What happens if firms did not have the ability to borrow funds?

A

They will have difficulty expanding their firm and adopting new technology

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10
Q

What are the 2 ways we can measure GDP?

A
  1. Calculating the total value of expenditures on final goods and services
  2. Calculating the total income value
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11
Q

What 4 major categories of expenditures are involved in GDP?

A
  1. Consumption
  2. Investment
  3. Government Purchases
  4. Net Exports
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12
Q

What 3 categories are consumption expenditures divided into?

A
  1. Services
  2. Nondurable goods
  3. Durable goods
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13
Q

What is an investment?

A

Spending by firms on capital

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14
Q

What are the 3 major categories of investment and explain each of them?

A
  1. Business Fixed Investment: Spending on capital by firms
  2. Residential Investment: Spending by households and firms on new single family and multi-unit houses
  3. Changes in Business Inventories: Changes in stocks of goods that have been produced but not sold
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15
Q

What are government purchases?

A

Spending by federal, state, and local governments on goods and services such as teacher’s salaries, highways and aircraft carriers

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16
Q

What are net exports?

A

Exports - Imports

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17
Q

What are imports?

A

Goods and services produced in foreign countries and purchased by domestic firms, households, and government.

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18
Q

Why are imports subtracted from total expenditures?

A

They do not result in the production of new goods and services in the U.S

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19
Q

What is the GDP formula?

A

GDP = C + I + G +NX

20
Q

What makes up most of consumer expenditures and by how much?

A

Services; more than double the spending on durable and nondurable goods

21
Q

What makes up the largest component of investments and why?

A

Business fixed investments; made by the state and local government rather than the federal government

22
Q

What are net exports negative?

A

Imports are greater than exports

23
Q

What is value added?

A

The market value a firm adds to a product. Equal to the difference between price for which the firm sells a good and the price it paid to other firms for intermediate goods

24
Q

What are intermediate goods?

A

The products used to produce the final products included in the GDP. Intermediate goods are not included in GDP because they are not a part of the final goods and services

25
Q

What does GDP not include?

A
  1. Household Production
  2. Underground Economy

These don’t have much shortcomings though

26
Q

What is household production?

A

Goods and services people produce for themselves

27
Q

What is underground economy?

A

Buying and selling of goods and services that is concealed from government to avoid taxes or regulations or because the goods and services are illegal

28
Q

What is GDP per capita?

A

Levels of GDP per person

29
Q

What is the formula for GDP per capita?

A

GDP for country/country’s population

30
Q

What is the relationship between leisure and GDP?

A

They are inversely proportional

31
Q

True or False: People in countries with low levels of GDP per capita are better off

A

False

32
Q

What is nominal GDP?

A

The value of final goods and service evaluated at current year prices

33
Q

What is real GDP?

A

The value of final goods and services evaluated at base-year prices to the other years

34
Q

What are chain weights?

A

Average prices of current and previous years

35
Q

What is price level?

A

A measure of the average prices of goods and services of the economy

36
Q

What is the GDP deflator measures and the formula?

A

Measures the changes in prices of goods and services produced domestically. The formula is nominal GDP/real GDP * 100

37
Q

What is national income accounting?

A

Methods the BEA uses to track total production and total income in the economy

38
Q

What else does the BEA compute besides?

A
  1. GNP
  2. National Income
  3. Personal Income
  4. Disposable Personal Income
39
Q

What is GNP?

A

The market value of goods and services produced by labor and property supplied by U.S residents, regardless of where they are located

40
Q

What is depreciation?

A

The amount by which machinery, equipment, and buildings decrease in value

41
Q

What two things make up national income?

A

Depreciation minus GDP

42
Q

What is personal income?

A

Income received by households

43
Q

What makes up personal income?

A

National income - earnings corporations retain + transfer payments

44
Q

What makes up disposable personal income?

A

Personal income - personal tax payments

45
Q

What is inflation rate?

A

The rate of increasing prices over a period of time

46
Q

What is the business cycle?

A

The cycle of fluctuations in the GDP around its long-term national growth rate

ECON MIDTERM (7 decks)

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